European markets take French no in stride

Turkey's market shrugs off rejection, euro slips

By

AudeLagorce

LONDON (MarketWatch) - The French stock market was pulled lower Monday and was the worst performing of the major European stock market indexes after voters during the weekend rejected the European Union constitution.

The French CAC 40 (1804546) index fell 0.2% at 4,122; the German DAX 30 was up 0.6% at 4,472. The Dutch index was up 0.2%.

The euro slipped 0.8% at $1.2472.

The U.K. and U.S. markets were closed for a holiday.

Although weeks of opinion polls pointing to a victory of the "No" vote had allowed markets to price in its implications, the size of the rejection still came as a surprise for some investors.

"The economic consequences of the no are limited this morning because the markets had anticipated this result. The euro is down against the dollar and will continue to decline but that's not bad news. It confirms the difficulty of Europe to be an area of growth and let's hope it will give us a new energy," said Marc Touati, chief strategist at Natexis Banques Populaires.

French Prime Minister Jean-Pierre Raffarin, who has been widely expected to resign, said today after a brief meeting with President Jacques Chirac that there would be "developments" today or Tuesday, AFX News reported.

Turkey's major index, after an initial dip of around 1%, was up 1.5%, shrugging off the French's rejection of the constitution.

"We expect the rejection of the EU constitutional treaty in France to weigh on equities at the opening. However, given that this outcome was largely anticipated by market players, we expect the index to recover, as Turkey will remain committed to the EU-driven reform process," EFG Istanbul Securities told clients.

"In the short-term, we expect large scale privatizations on the agenda, as well as potential M&A & FDIs to underpin investor interest in Turkish equities," the broker added.

Serhan Cevik, a Morgan Stanley economist who focuses on Turkey, also agreed that the consequence of the French "no" should be minimal for Turkey as long as accession talks start in due time.

"The outcome of the referendum was pretty much known to everybody already, so it was priced in," he said.

He explained that the French rejection of the treaty, and a possible election of the Christian Democrats -who are opposed to Turkey's admission to the EU-- in Germany are "irrelevant" to Turkey at a time when a potential accession is still at least 10 years ahead.

"The EU will not move away from the accession talks. They may be more difficult, but they will still start in October. To me, what really matters is having the process," he said.

In the wake of the French results, Portugal, Denmark and Ireland said they will go ahead with plans to hold referendums of their own, AFX News reported. In a short television appearance on Sunday, France's President Jacques Chirac urged all countries to go ahead with their plans to ratify the treaty.

U.K. Prime Minister Tony Blair, on holiday in Italy, said it was too early to say whether Britain would still hold a referendum.

Some analysts were pessimistic regarding the future of the treaty, which needs to be ratified by all 25 members of the E.U.

"First, the EU constitution will not survive, even if the ratification process continues. Second, the EU will close its doors to candidates for membership for some time. Third, the anti-reform camp will feel vindicated in other countries, implying possible policy shifts toward left-leaning social and fiscal policies as well as a more protectionist trade policy," Morgan Stanley analysts said.

Turning to corporate news, French television group TF1 (005490) was one of the biggest losers on the CAC, shedding 0.9% after it warned of a slight decline in advertising revenue in the first half as it reported first-quarter net income that fell to 60.9 million euros from 70.9 million euros in the year-ago quarter.

Sales for the period came in at 713.9 million euros, roughly flat year-on-year. Advertising revenue rose slightly to 430 million euros from 425.1 million euros. TF1 said it would review its advertising revenue outlook for the year in August.

In Germany, consolidation speculation kept the index afloat. Commerzbank AG (803200) shares gained 3% on a report in the Wall Street Journal that Deutsche Bank AG
DB, -0.12%
(804010), Royal Bank of Scotland Group PLC (RBS), BNP Paribas SA (013110) and Societe Generale SA (013080) are among the banks mulling an offer. However, no merger talks are under way yet and any bid is far from certain, the report said. Deutsche Bank shares rose 1.6%; BNP-Paribas shares slipped 0.6%, Societe Generale shed 0.2%.

Shares of Germany's HVB (802200) rose 0.7% after the bank confirmed it is in takeover talks with Unicredito Italiano (006585). The banks, however, said in a joint statement that no agreement has been reached and that the outcome is still subject to considerable uncertainty. The banks have been rumored to be discussing a $20 billion merger in what would be the biggest cross-border European banking deal. Unicredito rose 0.6%.

In the utility sector, shares Enel
EN, +5.45%
slipped 0.1%. The Italian group said it has signed a memorandum of understanding with Electricite de France opening up the French market to the Italian group. Enel said the memorandum will contribute to rebuilding Enel's expertise in nuclear energy. EDF's Chief Executive Pierre Gadonneix said in a statement that the specific agreement is "a further step in the deregulation of the European market of energy."

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